WELL Health stock should hit $10, Eight Capital says

The new acquisition by Canadian digital health company WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) is a sharp pickup, according to Eight Capital analyst Christian Sgro, who reiterated a “Buy” rating on the stock in a Friday report to clients.

WELL Health, which has clinic networks in Canada and the US as well as a suite of digital healthcare products including telehealth services, electronic medical records, software and cybersecurity solutions, announced the acquisition of Atlanta, Georgia-based CarePlus Management. 

WELL said CarePlus has almost $100 million in annual revenue from three business segments in the anaesthesia industry: a staffing business called RADAR which makes up the majority of its revenue; anaesthesia services similar to WELL’s CRH Medical, the subsidiary which acquired CarePlus; and an RCM (revenue cycle management) business. 

Sgro said he expects CarePlus’ Anaesthesia and RCM businesses will be higher margin and will be similar to WELL’s current CRH and RCM offerings, respectively.

“We see the CarePlus assts as inexpensively scaling the top line and expanding WELL’s service footprint in the US,” Sgro wrote. “Further, we see clear synergies with CRH’s profile with WELL able to unlock strategic value, all benefitting operating leverage and margin expansion potential.”

No price for the acquisition was given in WELL’s press release on the event, but Sgro is estimating a purchase price of 0.2x-0.4x revenues, given where public staffing companies currently trade. He noted that CarePlus’ results will contribute to WELL’s performance starting in the second half of the year.

“The overlap with CRH in anaesthesia services streamlines anaesthesia operations across the combined footprint (now in 23 states) and supports cross-selling of RCM and other tools,” Sgro said.

“With an increased collective network of 142 Ambulatory Service Centres services, we see an opportunity to better coordinate staffing requirements internally. Longer-term, there may be an opportunity to expand recruiting services across other US WELL divisions,” he said.

With the announcement, WELL management increased its full-year guidance by $50 million to $740-$760 million with no change in its EBITDA guidance of over $115 million, representing a ten per cent year-over-year growth rate.

Sgro has revised his forecast and is now calling for WELL’s revenue to go from $569.1 million in 2022 to $747.6 million in 2023 and to $874.6 million in 2024. Adjusted EBITDA is expected to go from $104.6 million in 2022 to $117.9 million in 2023 and to $135.4 million in 2024. 

With his “Buy” rating, Sgro also maintained a one-year target on WELL of $10.00 per share, representing at press time a projected return of 116 per cent.

Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.